The Bank of Canada delivered its third consecutive interest rate cut on Wednesday as inflation continues to cool and concerns shift to economic growth.
The quarter-percentage-point cut was widely expected by economists and brings the central bank’s benchmark interest rate to 4.25 per cent.
The policy rate, which widely sets the cost of borrowing across Canada and informs the rates many Canadians get on mortgages and other loans, has fallen 75 basis points since the easing cycle began in June.
Annual inflation has continued to cool through 2024, last coming in at 2.5 per cent in July.
“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate,” Bank of Canada governor Tiff Macklem said in prepared remarks Wednesday.
“We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time.”
Economists and market watchers have noted a tone shift from the Bank of Canada in recent months: downplaying concerns that it won’t hit its mandated two per cent target and instead focusing on deterioration in the labour market.
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Most economists who spoke to Global News heading into Wednesday’s decision said that, with growing confidence inflation is heading lower, there was little reason for interest rates to remain at such restrictive levels.
Macklem reiterated in his comments Wednesday that the central bank is as worried about inflation dipping below two per cent as it is stalling above the target.
“With inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much,” he said.
Macklem said the Bank of Canada’s governing council would be “guided by incoming information” and the projected impacts on the inflation outlook in deciding the future path for interest rates.
While the Bank of Canada is expecting inflation to ease further in the months ahead, Macklem’s commentary noted a risk that price pressures may “bump up later in the year,” largely the result of the previous year’s drops falling out of the annual comparison.
CIBC chief economist Avery Shenfeld said in a note to clients Wednesday morning that he is expecting two more 25-basis-point interest rate cuts at the Bank of Canada’s remaining decisions in 2024, en route to a policy rate of 2.5 per cent next year.
He noted that if inflation or jobs data comes in particularly weak over the coming months, the central bank may take oversized steps as part of a “bolder pace of easing.”
Macklem will provide more insight on the central bank’s latest decision at a press conference later Wednesday morning.
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